Whether you see them or not, industrials businesses play a crucial part in our daily activities. Still, their generally high capital requirements expose them to the ups and downs of economic cycles, and the market seems to be baking in a prolonged downturn as the industry has shed 12.1% over the past six months. This performance was worse than the S&P 500’s 2.4% fall.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. Keeping that in mind, here are two industrials stocks we think can generate sustainable market-beating returns and one best left ignored.
One IndustrialsStock to Sell:
Enphase (ENPH)
Market Cap: $5.43 billion
The first company to successfully commercialize the solar micro-inverter, Enphase (NASDAQ:ENPH) manufactures software-driven home energy products.
Why Does ENPH Worry Us?
- Declining unit sales over the past two years suggest it might have to lower prices to accelerate growth
- Efficiency has decreased over the last five years as its operating margin fell by 23.7 percentage points
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
Enphase’s stock price of $41.65 implies a valuation ratio of 12.3x forward P/E. Dive into our free research report to see why there are better opportunities than ENPH.
Two Industrials Stocks to Watch:
Sterling (STRL)
Market Cap: $5.72 billion
Involved in the construction of a major highway, the Grand Parkway in Houston, TX, Sterling Infrastructure (NASDAQ:STRL) provides civil infrastructure construction.
Why Do We Love STRL?
- Impressive 11.9% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Free cash flow margin grew by 13.9 percentage points over the last five years, giving the company more chips to play with
- Rising returns on capital show management is finding more attractive investment opportunities
At $188.01 per share, Sterling trades at 23.5x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Parsons (PSN)
Market Cap: $6.93 billion
Delivering aerospace technology during the Cold War-era, Parsons (NYSE:PSN) offers engineering, construction, and cybersecurity solutions for the infrastructure and defense sectors.
Why Does PSN Stand Out?
- Annual revenue growth of 23.8% over the last two years was superb and indicates its market share increased during this cycle
- Operating margin expanded by 1.7 percentage points over the last five years as it scaled and became more efficient
- Share buybacks catapulted its annual earnings per share growth to 35.3%, which outperformed its revenue gains over the last two years
Parsons is trading at $64.84 per share, or 17.2x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free.